Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

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Thursday, October 20, 2011

Anticompetitive Innovation and the Quality of Invention

Posted by D. Daniel Sokol

Alan James Devlin, University of Dublin - Trinity College, University College Dublin (UCD) and Michael S. Jacobs, DePaul University - College of Law discuss Anticompetitive Innovation and the Quality of Invention.

ABSTRACT: When, if ever, should antitrust condemn an act of invention? If the law seeks to foster innovation, as surely it does, one might imagine that it would never question the legitimacy of a newly commercialized technology. Such a perspective rightly informs the law’s skeptical reception of claims of predatory innovation. Nevertheless, theory instructs that dominant companies may, in certain circumstances, engage in strategic product design founded on illusory acts of invention intended to exclude rivals on qualitatively improper grounds. A categorical antitrust immunity for exclusionary innovation would thus be inappropriate. Yet, if the law is to entertain such claims at all, it must be with a jaundiced eye, for Type I errors that punish genuine acts of innovation threaten to yield perverse consequences. Unfortunately, the judiciary has struggled unsuccessfully to craft a coherent body of jurisprudence governing claims of anticompetitive innovation.

This Article addresses the challenging question of how best to judge predatory-invention claims, and under what standard courts should go about the formidable task of weighing the quality of a challenged improvement. It rejects as variously unworkable and incongruous the conflicting legal standards espoused by the D.C., Second, Ninth, and Federal Circuits. Considering the pertinent issues of judicial error, ex ante legal uncertainty and their negative effects on innovation platforms, the cost and duration of monopolization proceedings vis-à-vis the rapidity of scientific progress, the serious remedial limitations afflicting a court that finds an antitrust violation, and the respective social gains and losses associated with strategic product designs, the Article advocates the following test: if an impugned act of invention does not foreclose, but merely disadvantages, rival products, it should be per se lawful. If the challenged innovation effectively excludes entry into the relevant market, an antitrust violation should follow if the plaintiff demonstrates, and the defendant fails to rebut, the absence of a genuine technological improvement. We define “genuine” as reflecting a calculable premium that consumers would pay for the improved-upon alternative(s), even if the extent of that price differential falls short of the level required to place the new product in a distinct antitrust market.

In determining the quality of an invention, courts should not draw an inference of technological merit from the fact that the U.S. Patent & Trademark Office has awarded a patent over the relevant product or process. Further, evidence of predatory intent should play no role in antitrust analysis of predation. Finally, we recommend jettisoning as unhelpful the concept of “coercion” as a limitation on using consumer demand for a product as a proxy for bona fide innovation.. The Article concludes by applying its test to what, in many observers’ minds, is the quintessential example of predatory innovation: product hopping in the pharmaceutical industry.

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